Hasbrouck v. Rich

ELLISON, J. — The plaintiffs are trustees in a deed of trust in the nature of a mortgage given by a mining corporation known as the Missouri Blanket Vein Company, whereby an issue of bonds of certain denominations was secured. Defendant is the sheriff of Jasper county, and as such had seized certain property (cover — 393 — ed by the mortgage) under a writ of attachment sued out by certain creditors of the company. The plaintiff trustees brought this action in replevin against the sheriff and they prevailed in the trial court. The only question presented by the record is whether the provisions of the mortgage render- it void as to creditors as a matter of law. Among the provisions which it is urged make the mortgage void is one which makes it mandatory on the trustees to sell any of the mortgaged property on the Avritten request of the company whenever the latter deemed that it could not be further advantageously used. But it is provided that before a sale, the trustees must have the property appraised. And upon a sale at not less than appraisal the money realized shall be paid to the trustees and held as security for the bonds, until the company shall thereafter have acquired property of equal value to stand instead of the property sold. The provision reads: “Fourth. So long as the company shall not be in default in the payment of any interest or principal or in the exchange of, any of the bonds issued, as herein provided, any of the real or leasehold property, subject to this indenture, which cannot be advantageously used in the proper and judicious operation and management of the business of the company, or the sale of which shall become necessary for any cause, may be sold or exchanged for other property; and it shall be the duty of the trustees, or either one of them, upon the written request of the company, to execute suitable instruments releasing the same from the lien, and effect of this indenture. But in case of any such sale or exchange the company covenants and agrees as follows: “(a) That before any sale or exchange of property shall be made, such property shall be appraised by the trustees, or either one of them, or by an appraiser chosen or approved by said trustees, or either one of them. “(b) That in case of a sale of any of said property or of any interest therein, the price or proceeds of such — 394 — sale, not less than the appraised value of such property or interest, sold, shall be paid to the trustees, or either one of them, and held for the further security of the said bonds, until the company shall thereafter have expended money in the erection of buildings, or other permanent improvements on the property of the company, subject to this indenture, or in the purchase of other real property or mining leasees, free from encumbrance, or of leasehold property, at a price not exceeding its or their appraised value, which appraisal shall be made by said trustees, or either one of them, or by an appraiser chosen and approved by said trustees, or either one of them, and until such property shall have been conveyed to the trustees, to be held by them hereunder, as part of the mortgaged premises; whereupon the trustees, or either one of them, on being certified of such facts, shall pay to the company out of any money received and held by them, or either one of them, as the proceeds of property sold as aforesaid, an amount equal to Hie expenditures so made by the company in order to reimburse it therefor. “(c) That in case of an exchange of real property, other property free from incumbrances, and of an appraised value, which value shall be determined by the trustees, or either one of them, or by an appraiser chosen and approved by the trustees, or either one of them, equal to the appraised value of the property conveyed, shall be received by the company, and conveyed to the trustees, to be held by them hereunder, as part of the mortgaged premises. “The company shall be permitted to alter, remove or otherwise dispose of any buildings, fixtures, plant, machinery, boilers, tools, pumps or other personal property, covered by this indenture, which cannot, where located be advantageously used in the judicious operation and management of the business of the company. The company, however, covenants that it wall mairftain and preserve the value of the mortgaged premises or proper — 395 — ty from impairment or reduction, by restoring to their original value, and buildings, fixtures, plant or machinery, or personal property which may be altered, or removed from one portion of the mortgaged premises or property to another, and by replacing any buildings, fixtures, machinery, plant or other property which may be removed or otherwise disposed of by other buildings, fixtures, plant, machinery or other property, of at least equal value, which shall be erected or placed upon or attached to the premises or property hereby mortgaged, either before or promptly after such removal or other disposition.” The statute of- this State (section 3397, Revised Statutes 1899) avoids deeds conveying chattels to the use of the grantor. That statute has been applied to a variety of cases of attempted disposal of personalty, the effect of which was to hinder creditors and to protect the debtor. And defendant urges that the effect of the foregoing clause enabling the mortgagor company to dispose of personalty connected with the mining property, is nothing less than a clause for the immediate benefit of the company at the expense of general creditors, both prior and subsequent. But we do not think so. The personal property involved is not merchandise in constant sale at retail to be renewed and resold, as in the ordinary mercantile trade; thus enabling the debtor to carry on his business free of molestation by creditors. Such was the character of property in State to use, etc., v. Mueller, 10 Mo. App. 87; Oliver Grocer Co. v. Miller, 53 Mo. App. 107, and other cases cited by defendant. The property here referred to is not property to be sold for the benefit of the mortgagor, but it is rather property which may become worn out or otherwise useless in the service of the mortgagees. .The mortgage provides that such property may be sold, or otherwise disposed of, provided that other like property shall be immediately substituted and the mortgage security not impaired. Thus, if a machine necessary to mining should — 396 — become worn and impractical for further use, it could be disposed of and a proper and suitable one substituted, to the end that the security of the mortgagees might not be impaired. But in all this, nothing was to result to the benefit or use of the mortgagor company. In such respect differing from the cases of McCarthy v. Miller, 41 Mo. App. 200; Walter v. Wimer, 24 Mo. 63; Stanley v. Bunce, 27 Mo. 269; and other like cases. We may appropriately borrow the words of Judge Thompson in Jennings v. Sparkman, 48 Mo. App. 246: “It is plain that this language does not confer upon the mortgagor any general power of sale, or any general power of substitution by way of sale, but that the only power of substitution which it confers is a power of substitution for the purpose of supplying breakage, loss or waste of the property. This does not bring the case within the decision of the Supreme Court in Goddard v. Jones, 78 Mo. 518, nor within the decision of this court in State to use y. Busch, 38 Mo. App. 440. When it is considered that a part of the property covered by the mortgage Avas a saAvmill, portions of which are constantly liable to wear out or get broken, the appropriateness of the language to the subject-matter of the deed is apparent; and it is not at all apparent that the parties intended there-* by to make a conveyance to the use of the mortgagor, within the meaning of our decision.” See also Cook on Corp., sec. 798. 9 Mortgages of railroad property are analagous to that in controversy. In such conveyances the distinction is made betAveen the character of chattels mortgaged and those more closely pertaining to a mercantile character, such as we have referred to above. - It is said by the courts that this kind of property is necessarily undergoing constant Avear and consequent destruction, and that mortgages on going concerns would have but little value if the lien could not be made to apply to a reneAval of such property. That there was a constant necessity, from the very nature of the property, to dis — 397 — pose of worn out ties, rails, machinery and other property and replace it. That such necessity naturally forbids an inference of a fraudulent purpose in providing that it may he done. That such provisions were in the interest of the mortgagees and consequently, as a result, also to the interest of all other creditors. [Butler v. Rahm, 46 Md. 541; Ludlow v. Hurd, 1 Disney 552, 561; Railroad v. Woelper, 64 Pa. St. 366; Shaw v. Bill, 95 U. S. 10.] Those parts of the mortgage which we have quoted which refer to the power to sell real estate are qualified by further provisions requiring the trustees to appraise such property, the sale not to be at less than the appraised value, and the proceeds thereof turned over to the trustees to-be held until property of-equal value be purchased and held as part of the mortgaged property to secure the payment of the bonds. Whatever could be said of this part of the mortgage in case of controversy between the mortgagees and persons claiming title, *or an interest in the real estate which might be thus substituted, we cannot see any grounds for declaring that ■such provision renders the mortgage void in toto■ as to creditors. In regard to real estate different considerations enter from those concerning personalty. No actual fraud appears and there is nothing- in the mortgage which shows that any fraud can result to the creditors at whose suit the defendant seized the personal property in controversy. The only ground upon which the defendant can justify in the present case, is the absolute invalidity of the mortgage; such invalidity springing from the mortgage being to the mortgager’s use. The provisions as to the sale of the real estate do not sustain such contention. The. defendant presents a great number of other reasons which he urges make the mortgage fraudulent as a matter of law.- Those already referred to are all that we care to notice in detail. The others- we do not regard as substantial. It was certainly not a fraud upon cred — 398 — itors to provide that in case of fire the insurance money should he paid to the trustees and by them held as security for the bonds until the company should rehabilitate such property. So the provision that a foreclosure should not be had until a certain portion of the bondholders so requested is not such an one as renders the mortgage void. Indeed, such conditions are believed to be usual and the only practical way in which to draw a mortgage of like nature. It is finally insisted by defendant that the mortgag- or company was not properly organized and put into shape as a legal entity capacitated to execute a mortgage. It seems that the corporation was organized under the laws of Delaware. The point of objection is that, while the certificate of incorporation was granted by the State of Delaware, the organization was in fact had after-wards in the State of New York, where the board of directors were elected and entered upon the discharge of duties connected with the management of the affairs of the company. Defendant’s point, as disclosed by brief of counsel is that, “the first organization meeting of the corporation must be held within the state issuing the charter;” that is the State of Delaware instead of New York. It is shown by the plaintiffs that the charter of the corporation provides for the meeting of directors and transaction of business outside the original state granting the charter. But be that as it may, we do not see where defendant as representative of the attaching creditors has any right to make such defense. The corporation was and is an acting concern and the creditors have dealt with it as such; and their claims arose out of contracts with the corporation as such. They are now estopped from asserting to the contrary. [Continental Trust Co. v. Railway Company, 82 Fed. Rep. 642; Toledo Ry. Co. v. Continental Trust Co., 95 Fed. Rep. 497, 507.] — 399 — We are satisfied with the judgment of the trial court and order that it be affirmed. All concur.